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Global trade tensions and the potential for a value-added tax (VAT) hike in South Africa could undermine two years of slowing inflation, according to the country’s central bank governor, Lesetja Kganyago. Speaking on the sidelines of a G20 finance officials meeting in Cape Town, Kganyago warned that uncertain trade conditions and retaliatory tariffs could impact South Africa by tightening global financing conditions and affecting its exports.
South Africa’s G20 presidency has been overshadowed by the prospect of a global trade war, particularly after U.S. President Donald Trump’s return to the White House last month. Japan’s finance minister has withdrawn from this week’s G20 finance meeting to focus on passing next year’s budget, while U.S. Treasury Secretary Scott Bessent is absent due to tensions between Trump’s administration and South Africa.
“One thing looming large is elevated uncertainty due to some of the trade measures taken by major economies,” Kganyago told Reuters. He added, “A combination of those could feed into the domestic price formation process and create a challenge for us where you have both a slowing global economy and a rising inflation profile at the same time.”
Annual consumer inflation rose for the second consecutive month in December, reaching 3.0%, but it remains at the lower end of the South African Reserve Bank’s target range of 3%-6%. The bank started cutting interest rates in September of the previous year, with three 25-basis-point cuts implemented so far. However, some analysts believe the bank may pause its rate-cutting cycle soon due to deteriorating global economic conditions and emerging domestic risks.
Last week, South Africa’s national budget was postponed for the first time in its post-apartheid history following a last-minute disagreement within the ruling coalition over a proposal to raise VAT by 2 percentage points to 17%. Finance Minister Enoch Godongwana is expected to present a new budget on March 12 without the VAT increase. Kganyago referred to the proposed VAT hike as a “self-inflicted shock” and noted that the central bank would respond to any second-round effects on inflation if the increase were implemented.
